931 F. Supp. 2d 743
N.D. Tex.2013Background
- Foreclosure-related state-case originally filed July 3, 2012 in Texas against Seterus, Fannie Mae, the McCarthy firm, MERS, MERSCORP, and CTX.
- Plaintiffs allege the Note and Deed of Trust were securitized, with MERS as nominee, passing interests to a REMIC and ultimately to Fannie Mae.
- Plaintiffs contend defects in authority to foreclose due to alleged misassignment, split of note and deed, and securitization.
- Defendants removed to federal court on July 17, 2012 and moved to dismiss under Rule 12(b)(6) on July 24, 2012.
- Court conducted TRO proceedings; TRO requests denied; later submissions by Plaintiffs were not considered for the motion.
- Court concludes some claims lack standing or fail on the pleadings, but allows amendments on certain theories and preserves others for potential summary judgment review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge assignments | Preston plaintiffs have standing to challenge assignments and to seek declaratory relief about ownership of the note. | Borrowers lack standing to contest assignments because they are not parties to the assignments; burden rests on lenders. | Plaintiffs have standing to challenge foreclose; some theories dismissed as legally insufficient. |
| Show-me-the-note / split-the-note theories | Foreclosure invalid if note is split from Deed of Trust or REMIC/Trust holds only the deed; need original note. | Texas law allows foreclosure with transfer of the note; mortgage follows the note; show-me-the-note and split-the-note theories fail. | Show-me-the-note and split-the-note theories dismissed; foreclosure authority can exist without producing the original wet-ink note. |
| Declaratory judgment viability | Declaratory relief to declare nullity of foreclosure and improper ownership. | Claims are speculative without specific facts showing lack of authority or ownership. | Certain declaratory judgment theories dismissed; amendment allowed to plead concrete facts; others not yet disposed. |
| Economic loss rule and tort claims | Negligent misrepresentation, negligent supervision, and unjust enrichment arise from alleged misrepresentations and improper foreclosures. | Economic losses from contractual breaches are not recoverable in tort; some claims barred. | Unjust enrichment and negligent misrepresentation/supervision claims barred by economic loss rule; fraudulent inducement may proceed if pled with particularity. |
| FDCPA and RESPA viability | Defendants misrepresented debt ownership and engaged in unlawful collection activity; RESPA failures alleged. | FDCPA applies to debt collectors; status of debt ownership unclear; RESPA claims lack sufficient basis. | FDCPA claims not dismissed entirely; CTX not clearly a debt collector; RESPA claim survives as to service-change notifications; other theories limited. |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility and rejection of bare legal conclusions)
- Perry v. Stewart Title Co., 756 F.2d 1197 (5th Cir. 1985) (debt-collection status and exceptions under FDCPA)
- Williams v. Countrywide Home Loans, Inc., 504 F. Supp. 2d 176 (S.D. Tex. 2007) (foreclosure not categorically excluded from FDCPA applicability)
- Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472 (Tex. 1995) (DTPA consumer status elements)